Molecular dynamics simulations of 1-palmitoyl-2-oleoyl-phosphatidylcholine (POPC) bilayer were carried out at two different cholesterol concentrations. The interactions of cholesterol with water oxygen, carbonyl oxygens and phosphate non-ester oxygens are compared. At higher cholesterol concentration the distribution of water and carbonyl oxygens around the cholesterol hydroxyl oxygen gets altered with a concomitant increase in cholesterol-cholesterol contacts. The change in hydrogen bonding of cholesterol hydroxyl group with lipid as well as water is observed. Higher cholesterol concentration induces restriction in the POPC as well as cholesterol dynamics. Formation of cholesterol rich and cholesterol deficient domains are clearly identified. (C) 2007 Elsevier B.V. All rights reserved.